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Mean-Variance Portfolio Selection with Reference Dependent Preferences

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Author Info
Sergiy Gerasymchuk () (Advanced School of Economics, University of Venice)

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Abstract

We study S-shaped utility maximization for the standard portfolio selection problem with one risky and one risk-free asset. We derive a mean-variance criterium of choice, which preserves reference dependence and the reflection effect. Subsequently, we study diversification possibilities and obtain the demand for the risky asset. We close the paper with an alternative interpretation of the criterium in terms of target-based decision making.

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File URL: http://www.dma.unive.it/wpdma/2007wp150.pdf
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Publisher Info
Paper provided by Department of Applied Mathematics, University of Venice in its series Working Papers with number 150.

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Length: 19 pages
Date of creation: Apr 2007
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Handle: RePEc:vnm:wpaper:150

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Related research
Keywords: portfolio selection S-shaped utility prospect theory reference point mean-variance analysis demand for the risky asset target-based decisions.

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Marco LiCalzi, 2005. "A language for the construction of preferences under uncertainty," Game Theory and Information 0509002, EconWPA. [Downloadable!]
  2. Erio Castagnoli & Marco LiCalzi, 2005. "Expected utility without utility," Game Theory and Information 0508004, EconWPA. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sergiy Gerasymchuk, 2008. "Asset return and wealth dynamics with reference dependent preferences and heterogeneous beliefs," Working Papers 160, Department of Applied Mathematics, University of Venice. [Downloadable!]
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This page was last updated on 2008-10-6.

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